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Do Structural Oil-Market Shocks Affect Stock Prices?

Author

Listed:
  • Nicholas Apergis

    (Department of Financial & Banking Management, University of Piraeus)

  • Stephen M. Miller

    (Department of Economics, University of Nevada, Las Vegas)

Abstract

This paper investigates how explicit structural shocks that characterize the endogenous character of oil price changes affect stock-market returns in a sample of eight countries – Australia, Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. For each country, the analysis proceeds in two steps. First, modifying the procedure of Kilian (2008a), we employ a vector error-correction or vector autoregressive model to decompose oil-price changes into three components: oil-supply shocks, global aggregate-demand shocks, and global oil-demand shocks. The last component relates to specific idiosyncratic features of the oil market, such as changes in the precautionary demand concerning the uncertainty about the availability of future oil supplies. Second, recovering the oil-supply shocks, global aggregate-demand shocks, and global oil-demand shocks from the first analysis, we then employ a vector autoregressive model to determine the effects of these structural shocks on the stock market returns in our sample of eight countries. We find that international stock market returns do not respond in a large way to oil market shocks. That is, the significant effects that exist prove small in magnitude.

Suggested Citation

  • Nicholas Apergis & Stephen M. Miller, 2009. "Do Structural Oil-Market Shocks Affect Stock Prices?," Working Papers 0917, University of Nevada, Las Vegas , Department of Economics.
    • Handle: RePEc:nlv:wpaper:0917
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    References listed on IDEAS

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    More about this item

    Keywords

    real stock returns; structural oil-price shocks; variance decomposition;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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